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TPG-Vodafone merger threatens NBN – The Australian Financial Review

Mr Berroeta has long been eyeing the option of fixed wireless broadband, but the company has been heavily constrained by its limited spectrum holdings.

Mr Martin said this would change overnight when the merger goes through, which barring an appeal from the Australian Competition and Consumer Commission is likely to happen mid-year.

“Spectrum” refers to the bands of electromagnet spectrum that carry mobile data between the mobile towers and the phone. The government leases usage of the appropriate bands to mobile carriers, who bid for them at auctions.

TPG owns the right to use a large chunk of 700 megahertz and 3.5 gigahertz spectrum, none of which it is currently using.

The immediate result, Mr Martin said, would be a more competitive mobile 4G offering as TPG-Vodafone has 60 per cent more capacity to offer generous mobile data packages.

“For the last three years Telstra and Optus have taken a 90 per cent share of postpaid net add, because Vodafone has not had capacity. As the merger gets done mid-year, they’ll be able to play in that market for [the] first time in three years.

“That’s the immediate impact, and that’s what’s got the market worried. Telstra has had such a good run in winning customers, but now the market is saying Vodafone is back in the game.

“They’ll be able to meet Telstra and Optus with data allowances, so instead of getting 5 or 6 per cent of the new postpaid market, they’ll get 25 or 30 per cent. The question is do they lower price points to increase impact.”

He said the market was divided on whether this would happen. He said Optus had put gaining market share ahead of earnings, and this had not “worked well”.

But he said the more interesting longer term development would be in 5G.

“What’s going to happen in three to five years’ time with 5G, now there is a strong third player to rival Telstra and Optus? It changes everything, and not just for Optus, but for NBN Co too. Theres’ a lot of broadband customers – NBN says 15 per cent, but I think 25 or 30 per cent is more likely – that could be serviced on these wireless networks.”

He said if 30 per cent of households switched to a non-NBN fixed wireless product, it would have “very material” consequences for NBN, almost certainly forcing a write-down. Mr Martin said the danger was that if NBN responded by slashing prices, fixed wireless might no longer be competitive and the significant investment would have been a partial waste – although it would have the benefit of making the NBN resale more lucrative.

As yet, only Optus has actively pursued the 5G fixed wireless market. Telstra has the capacity to do so, but the terms of its agreement with the NBN, that sees it receive billions in compensation for moving customers off its copper network and onto the NBN, forbids Telstra from competing directly with the NBN.

TPG-Vodafone has no such limitations, meaning two of Australia’s three mobile network operators could soon be going head-to-head with the NBN, potentially with a superior product.

The merger will give the company another advantage Vodafone would not have had on its own: access to TPG’s two million home broadband customers, most of whom are on the NBN.

NBN retail is a notoriously low margin industry – Telstra  chief executive Andy Penn says his company makes no money at all out of reselling NBN plans – so a merged TPG-Vodafone would have both the ability and the incentive to move customers onto a more lucrative broadband service.

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